Projected inflation estimates for Premier purchasing contracts less than 1 percent, well below industry averages
Premier’s Economic Outlook and Inflation Estimates analysis through 2010 suggests annual market inflation rates will increase on average between 1.6 percent and 4 percent across categories such as cardiovascular services, facilities, imaging and nursing. These predicted market price increases are similar to those projected by Premier in its March 2009 analysis and suggest that incremental inflationary factors are waning.
Premier’s existing contracts are expected to increase only 0.83 percent on average in the next year, lower than overall market increases which are predicted to be an average of 3 percent during this timeframe.
The Economic Outlook is a semiannual report that projects rates of inflation for the ensuing 12-18 months. Premier produces a new analysis every six months to ensure projections are reflective of changing market trends. The analysis helps alert Premier alliance hospital members to market forces that could drive price changes in the coming months and years.
According to the analysis, the healthcare industry may see pricing changes related to the following factors:
Isotope shortages – Continued price increases are expected in this area, which has experienced increases by double digits over the past 18 months due to limited production capacity worldwide; only five nuclear reactors on the planet are capable of producing the needed isotopes, which are used in nuclear imaging.
Oil prices and distribution costs – Price increases are expected in medical materials such as bandages, syringes, vinyl gloves, catheters and medical film that contain synthetic rubber, plastics, resins and other oil-based materials. The market prices of these materials will naturally fluctuate with the cost of oil.
Synthetic rubber prices – As the cost of rubber (both synthetic and natural) begins to increase to reflect the resurgent demand, healthcare professionals could see an increase in all products containing rubber, such as gloves, airway tubes, stomach tubes, rubber sheeting, irrigating syringes and water bottles.
Pandemic disaster preparation techniques – Items such as gloves, face masks and gowns are in high demand as providers prepare for an influx of H1N1 influenza cases this fall; higher inventory levels may be required to support disaster readiness plans.
New technology expenses – Products such as Radio Frequency Identification (RFID – used to track items in case of a recall) enabled sponges and pacemakers with capabilities in place for home checkups will increase initial medical equipment expenses for hospitals, but will result in tremendous savings over the life of the products.
Pharmaceuticals – As generic versions of key drugs infiltrate the market in the coming months (at least 18 key pharmaceutical products are expected to have their exclusivity rights expire before the end of 2009), expect costs for these drugs to decrease.
Said Premier Purchasing Partners President Mike Alkire, “We believe the link between market information and contractual price protection offered in this analysis will provide our members with solid data to use for planning future expense levels. It also offers providers a look at market factors that could impact pricing in the future.”
The analysis features perspectives from Premier alliance members Carolinas HealthCare System and Summa Health System, and Premier contracted suppliers Sage Products Inc. and Kimberly-Clark Corporation. Click here to see what they’re saying.
Continued Alkire, “This analysis shows that Premier’s projected contract inflation estimates are well below that of the industry as a whole. One of the main reasons for this is that Premier includes a price protection clause in most of its contracts, so prices are held firm for the life of the agreement. As always, Premier is doing everything we can to ensure our members are achieving optimal efficiency without sacrificing patient quality.”
Additional inflation estimates by category include clinical laboratory, foodservice, housekeeping, IT/telecommunications, pharmacy, support services, surgical services and women and children’s. Premier polled more than 500 of its contracted suppliers to obtain market inflation estimates.
The report contains a wealth of materials to further assist members in dealing with the current economic realities, including accurate predictors of price inflation through an Inflation Calculator in Premier’s Supply Chain Advisor. The online automated contract management system allows members to estimate their facility’s total inflation impact by taking into account individual utilization patterns and the price protection offered by Premier’s contracts.
What Premier alliance members and contracted suppliers are saying:
“Economics is all about the allocation of limited resources. Today’s environment reminds us that resources are indeed limited and we must allocate them wisely to achieve a goal which is the most important goal at CHS facilities: improving patient outcomes.” - Jim Olsen, vice president of Materials Resource Management at Carolinas HealthCare System.
“We feel strongly that Summa is prepared and will continue to deliver quality care because of our structure as an integrated delivery system and because of sound business decisions that senior leadership has made.” - Mike Rutherford, chief financial officer, and Kevin Theiss, vice president of Revenue Cycle, Summa Health System
“The industry needs to focus on the right product for the right task to prevent misuse, overuse, and ultimately unnecessary costs. As suppliers, we need to ensure our customers don’t overbuy premium products when such use will not improve patient or caregiver outcomes.” - Judson Boothe, MBA, marketing director, Kimberly-Clark Corporation
“Now more than ever, it is essential for all entities in the industry to communicate to make sure all of us are properly utilizing resources and avoiding waste. Most importantly, we need to communicate to ensure we’re reaching our overall goal – to provide healthcare professionals with the best products at the best prices, which will lead to the best possible outcomes.” - Scott Brown, president and COO of Sage Products Inc.